Monday, May 26, 2008

Real Time Economics : Oil Bubble? The Debate Rages

Are oil prices in a bubble? Methinks yes, sorta. I believe much of the problem is fundamentally a demand one, there is too much of it. And as a supporter of the peak-oil theory, I think everything we do on the supply side will be a temporary fix and not really worth the trouble. Indeed it will cause more trouble (climate change) and will hurry the draining of existing oil (new supplies lower prices, increases demand, and consumes whats left of the oil at faster rates.)

So where is the "sorta"? Well, I think some speculation and the low dollar/interest rates have fueled (pardon the pun) some irrational exhuberence. It maybe is not leading up to a dot-com style bubble, but a bubble none-the-less.

Here is my thought on what will pop the bubble: interest rates finally hit bottow and the Fed begins to raise them to combat inflation and support the dollar. That's my call on how the price of oil may drop. We'll see....

Real Time Economics : Oil Bubble? The Debate Rages

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